Royal Caribbean Cruise Lines 2002 Annual Report Download - page 21

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ROYAL CARIBBEAN CRUISES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
OTHER INCOME (EXPENSE)
Gross interest expense, excluding capitalized interest, was $290.3 million in 2002, essentially
unchanged from 2001. The increase in the average debt level associated with our fleet expan-
sion program was offset by a decrease in interest rates. Capitalized interest decreased to $23.4
million in 2002 from $37.0 million in 2001 due to a lower average level of investment in ships
under construction and lower interest rates.
Included in Other income (expense) in 2002 was $33.0 million of net proceeds received in con-
nection with the termination of the P&O Princess merger agreement. Also included in Other
income (expense) in 2002 and 2001 were $20.3 million and $19.4 million, respectively, of divi-
dend income from our investment in convertible preferred stock of First Choice Holidays PLC
as well as $12.3 million and $7.2 million, respectively, of compensation from shipyards related
to the late delivery of ships, partially offset by $6.6 million and $1.6 million, respectively, of loss-
es from affiliated operations as well as other miscellaneous items.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
REVENUES
Revenues increased 9.7% to $3.1 billion from $2.9 billion in 2000. The increase in revenues was
primarily due to a 20.8% increase in capacity, partially offset by a 9.1% decline in gross revenue
per available passenger cruise day. The increase in capacity was primarily due to the addition of
Millennium and Explorer of the Seas in 2000, and Infinity , Radiance of the Seas , Summit and
Adventure of the Seas in 2001. The increase in new capacity was partially offset by the can-
cellation of 14 weeks of sailings due to ship incidents and the events of September 11, 2001.
The decline in gross revenue per available passenger cruise day was primarily attributed to the
events related to September 11, 2001, a general softness in the United States economy and a
significant growth of our fleet capacity. Net yields for 2001 declined 9.1% from the prior year.
Occupancy for 2001 was 101.8% compared to 104.4% in 2000.
EXPENSES
Operating expenses increased 17.1% to $1.9 billion in 2001 compared to $1.7 billion for the
same period in 2000. The increase is primarily due to additional costs associated with in-
creased capacity.
Marketing, selling and administrative expenses increased 10.0% to $454.1 million in 2001 from
$412.8 million in 2000. On a per available passenger cruise day basis, marketing, selling and
administrative expenses decreased 8.9% primarily due to economies of scale and cost con-
tainment efforts, partially offset by business decisions taken subsequent to the events of
September 11, 2001 involving itinerary changes, office closures and severance costs related to
a reduction in force. Marketing, selling and administrative expenses as a percentage of rev-
enues were 14.4% for 2001 and 2000.
Cost savings initiatives from 2000 and 2001 contributed to a 4.5% reduction in operating costs
and marketing, selling and administrative expenses on a per available passenger cruise day
basis, excluding fuel costs, in 2001 compared to 2000.
Depreciation and amortization increased 30.4% to $301.2 million in 2001 from $231.0 million
in 2000. The increase is primarily due to incremental depreciation associated with the addition
of new ships.
OTHER INCOME (EXPENSE)
Gross interest expense, excluding capitalized interest, increased to $290.2 million in 2001 com-
pared to $198.5 million in 2000. The increase is primarily due to an increase in the average debt
level associated with our fleet expansion program, partially offset by a reduction in our weighted-
average interest rate. Capitalized interest decreased from $44.2 million in 2000 to $37.0 million
in 2001 due to a lower average level of investment in ships under construction and lower inter-
est rates.